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The only question now is whether the slowdown in the economy is what economists at the HSBC bank call “a speed bump” on the road to continued recovery, or the first step down the road to a double-dip recession. No less an expert than former Federal Reserve Board chairman Alan Greenspan answers, “I don’t know” when asked whether it’s speed bump or double dip.

Activity in the manufacturing sector, an important contributor to the recovery until now, dropped last month by more than in any month since 1984. Ominously, new orders plunged, suggesting that a pickup soon is unlikely. Sales of cars and trucks by U.S. makers fell by 3.7% in May, the first decline in eighteen months. The service sector is also reporting what analysts call “soft numbers”. Home prices fell, wiping out the tiny gains of the past two years, as 10 million vacant homes, 2.3 million of them in foreclosure, glut the market. Department store sales, except at the highest end, were disappointing. And the jobs market weakened more than anyone predicted, with the honorable exception of CNBC’s Rick Santelli: only 83,000 new non-farm jobs were created in the private sector in May. Since governments laid off 29,000 (not a bad thing in the eyes of some), net job creation came to a measly 54,000. And March and April figures were revised downward by 39,000.

More by Irwin M. Stelzer

Suddenly, the debates that have roiled Washington have shifted. Less is heard about the inflationary effects of the Fed’s decision to buy $2 trillion of mortgages and Treasury bonds with newly printed money, and more is heard about the possibility that Fed chairman Ben Bernanke will use the August meeting of central bankers in Jackson Hole, Wyoming to announce the replacement of QE2, ending this month, with a new QE3. After all, Bernanke has repeatedly insisted that he will not repeat the error made by the Fed in 1937, when it aborted the recovery by tightening too soon. Less is also heard about the need to cut spending and raise taxes, and more about the need to keep fiscal policy stimulative, a shift that is affecting the negotiations over whether to raise the debt ceiling.

Despite the slowdown, so far the Republicans are still demanding spending cuts as the price of agreeing to an increase in the debt ceiling. And the Democrats, continuing to call for “revenue enhancements”, aka tax increases, as the preferred way to get the deficit below double digits, have also been wrong-footed. They have the rich and corporate welfare — tax breaks to the oil and other industries — in their sights. But it won’t be easy to sell tax increases if the economy is sliding into another recession.

Both positions — Republicans’ insistence on spending cuts and Democrats’ call for tax increases — were adopted when the economy was recovering. If the current data foretell a double dip, those positions will be subject to review. Meanwhile, just to add to our worries, Moody’s has warned it will downgrade America’s credit rating unless the debt ceiling is raised, and soon. Oh yes, and because the government is in no position to bail out any banks, it might lower their ratings as well, making it more difficult for them to raise capital and to continue the slight pickup in lending that is one of the brighter spots in the economic picture.

Our politicians, usually a parochial lot, have started to pay attention to developments in the eurozone. They see countries that were brought low by excessive borrowing being brought even lower by austerity programs aimed at getting their fiscal houses in order. Were John F. Kennedy around, he might mutter, “We are all Athenians now.” Add politicians’ horror of riling voters by taking away benefits or raising taxes, and they might be frightened enough by the unemployment and political turmoil created by austerity programs in euroland to do nothing of substance until after the 2012 elections. Polling data suggest that most Americans want to see the deficit cut and spending reduced, but do not want to give up their health care or other benefits. This might be one of those instances in which presidential leadership, rather than following polling data is needed.

Every politician in Washington knows three things. First, economists are of little help, uncertain about whether this is the time for austerity, and if it is, how to get there. Second, neither the spending cutters nor the tax increasers can “win” the debate over the debt ceiling, making compromise essential. Finally, they know that the eventual compromise will contain a large dollop of fudge, so they can do what they all have pledged never to do -- kick the can down the road until after the 2012 elections.

Which suits the Republicans just fine. They feel the slowing economy is their ticket to the White House, and are buoyed by the fact that no sitting president since Franklin Roosevelt has been re-elected when the unemployment rate was above 7.2% on the day voters went to the polls. President Obama, they reckon, cannot survive unless the economy is in an unmistakable upswing before the November 2012 election, one that brings the unemployment rate down very substantially from its current level of 9.1%. Odd, that sort of Marxist economic determinism coming from the right, as if man lives by bread alone.

These Republican optimists paid insufficient attention to the President’s performance on his recent European trip. President O’Bama stroked America’s ethnic Irish voters in key states by downing the obligatory Guinness, and soothed voters with emotional ties to Poland by deploying some American troops in their country of origin. With a deftness often absent from his foreign policy decisions, he at the same time maintained his “reset” policy with Russia by giving the Russian arms industry a boost with an order for helicopters, a decision he or his successor may one day come to regret.

More important, in London he displayed the political gifts that seem to have deserted him in recent months. Elegant chumminess with Her Majesty and the enormously popular newlyweds, Kate and Wills. Seriousness of purpose and soaring oratory about Western values when addressing Parliament and notables at Westminster Hall. Man-of-the-people flipping burgers in the garden of Number 10. And a fashionable wife who shrewdly brought ethnic minority London schoolgirls, many wearing head scarves, to Christ Church, Oxford, for photo ops, hugs and to be told, “My story is your story.”

This in not a man whose re-election effort will be derailed because of a mere set of economic data, or a few tenths of a point difference in the GDP or unemployment rates. Especially by the likes of the candidates the Republicans so far have on offer.